Loop Will Be Inside Handsets Within One Year, CEO Says

Loop, the payments startup that allows for contactless payments at magstripe card readers using magnetic transmission, has plans that go far beyond magstripe itself.

The company has deals in the works with a major card network and a major handset manufacturer that should see daylight later this year, CEO Will Graylin told Bank Innovation yesterday.

Loop is in talks with the card company to make every Loop-powered transaction a dynamic one, so that static magstripe cards will work like EMV cards and send a one-time token to the point of sale. Tokenization makes the data useless to those that might intercept it, and would have prevented, for example, the Target debacle, Graylin said. This enhanced security will figure in Loop’s marketing.

“The POS doesn’t care, the acquirer doesn”t care,” Graylin said, describing Loop’s tokenization scenario. “The network connects to the issuer who sends a one-time token back. It’s the same security as EMV, and counts as a card-present transaction for the merchant.” Card-not-present transactions, which happen for example over the phone or internet, carry higher interchange fees for merchants because they carry a greater risk of fraud.

Loop burst on the scene at Money2020 to widespread acclaim in the fall of 2013. Shortly afterward the company secured $10 million in Series A funding, but since then the company has seemingly lost ground among payments pundits to Coin, the card that allows up to eight other cards to be stored and used on it. (Remember Bag Hutch, which held up to twelve bags?)

Both Coin and Loop operate on card rails and seem liable to become obsolete if cards become obsolete. But it turns out that Graylin has some tricks up his sleeve to keep Loop in the payments game for the long haul.

At the most basic level, Loop’s technology is a small coil of wires that can send a magnetic transmission containing card payment data to magnetic stripe card readers. This allows it to contactlessly pay at more than 90% of the point of sale terminals in the U.S. It does not work at machines requiring a “full dip” rather than just a swipe. This includes many ATMs and gas pumps.

To say it is difficult for merchants to roll out new point-of-sale experiences is to wildly understate matters. Graylin described an experience illustrating this from a recent trip to Las Vegas: “There were two Starbucks in the hotel, both franchises. Franchisees make their own decisions on the point of sale. And they didn’t accept the Starbucks app, either one. But they took the Starbucks card. They all take cards. So more Starbucks accept Loop than the Starbucks app, which has been around for three years.”

How can Loop offer customers a Starbucks-like experience? It can try and do it by being a superior container for loyalty cards.  The app can remember an unlimited number of cards, and switching between cards in the app is a simple process. Cards and apps are strongly linked. In the case of both Starbucks and Dunkin Donuts, two of the more successful mobile payments apps, the app is essentially a digitized card, linked to the same prepaid account. The Loop app can view and display the data from loyalty accounts such as Dunkin Donuts using the company’s application programming interface, or API.

“We are an ecosystem play,” Graylin said. “We go to issuers and say, you can leverage our platform. For merchants, we are a platform for loyalty and deals, we are a template on which they can load deals.”

It is merchants who may be the toughest sell for Loop. The promise of mobile payments for merchants has been the data that is supposed to allow for more targeted offers. Loop offers this only in the sense it facilitates payments using the store’s own cards, which provide data through their use. The company is in discussions with “some of the largest physical and e-commerce retailers” to familiarize them with Loop’s offerings, including restaurants.

Restaurants, incidentally present a particular challenge to phone-based payments. Who wants to hand his phone to a waiter for five or ten minutes? Restaurants experimenting with mobile payments therefore generally work on the European model, where the payment is processed at the table. (There is also Cover, which processes the payment after the diner leaves the restaurant.)

The ultimate win for Loop would be embedding the technology within a mobile handset, and Graylin says the flagship device will be on the market before the end of the year. (Samsung, which has partnered with PayPal, seems the likeliest partner.)

“Getting Loop inside a handset costs less than $1 per device,” Graylin said. “Loop can share the wire with wireless charging functionality, and use the NFC antenna for transmission.”

But Loop is still tied to the card rails even then — until bitcoin wallets can be loaded onto the app.